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Hedge Funds Aren’t Crazy About OneMain Holdings Inc (OMF) Anymore

In this article you are going to find out whether hedge funds think OneMain Holdings Inc (NYSE:OMF) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

OneMain Holdings Inc (NYSE:OMF) was in 34 hedge funds’ portfolios at the end of March. OMF investors should pay attention to a decrease in hedge fund interest recently. There were 39 hedge funds in our database with OMF holdings at the end of the previous quarter. Our calculations also showed that OMF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 51 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Bill Miller

Bill Miller of Miller Value Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the latest hedge fund action surrounding OneMain Holdings Inc (NYSE:OMF).

What have hedge funds been doing with OneMain Holdings Inc (NYSE:OMF)?

Heading into the second quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards OMF over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Miller Value Partners held the most valuable stake in OneMain Holdings Inc (NYSE:OMF), which was worth $37.3 million at the end of the third quarter. On the second spot was Key Colony Management which amassed $36.1 million worth of shares. Adage Capital Management, Basswood Capital, and Point72 Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Key Colony Management allocated the biggest weight to OneMain Holdings Inc (NYSE:OMF), around 93.6% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, designating 3.33 percent of its 13F equity portfolio to OMF.

Because OneMain Holdings Inc (NYSE:OMF) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers who were dropping their entire stakes heading into Q4. Intriguingly, Ravi Chopra’s Azora Capital sold off the largest stake of the 750 funds watched by Insider Monkey, valued at about $17.8 million in stock, and Tom Brown’s Second Curve Capital was right behind this move, as the fund said goodbye to about $14.4 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 5 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as OneMain Holdings Inc (NYSE:OMF) but similarly valued. We will take a look at Synovus Financial Corp. (NYSE:SNV), Essent Group Ltd (NYSE:ESNT), TriNet Group Inc (NYSE:TNET), and II-VI, Inc. (NASDAQ:IIVI). This group of stocks’ market caps are closest to OMF’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SNV 33 228467 -2
ESNT 26 196484 -10
TNET 19 230192 -1
IIVI 20 99773 2
Average 24.5 188729 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $189 million. That figure was $221 million in OMF’s case. Synovus Financial Corp. (NYSE:SNV) is the most popular stock in this table. On the other hand TriNet Group Inc (NYSE:TNET) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks OneMain Holdings Inc (NYSE:OMF) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on OMF as the stock returned 23.6% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.